IRS Launches High-Wealth Task Force and Prepares Audits

On Oct. 26, 2009, IRS Commissioner Douglas Shulman announced the creation of a new specialized industry group to target high-wealth individuals. Surprisingly, this Global High Wealth Industry Group will be housed within the Large and Mid-Size Business (LMSB) Division, and the IRS is planning a number of examinations to test the program. According to Shulman, many other countries already employ specialized task forces to pursue their wealthiest taxpayers. The idea is to centralize IRS compliance efforts for high-wealth individuals because the IRS has to look at sophisticated financial, business, and investment arrangements with complicated legal structures and tax consequences. The task force will take a unified approach to its audits by focusing on the entire web of business entities controlled by a wealthy individual, including issues involving offshore structures, income sources and tax residency.

The IRS has ostensibly been targeting high-income taxpayers all along, but Shulman seemed to indicate in his comments that current IRS efforts typically involve identifying single returns for audit based on the usual scoring systems for audit selection. The new program would instead look at everything that may be connected to a single taxpayer, including trusts, private foundations, partnerships, equity-sharing arrangements, royalty and licensing agreements, and privately held and related entities where the taxpayer may have actual or beneficial ownership. The IRS has already hired flowthrough specialists and international examiners for the team and is considering adding economists, appraisal experts and industry specialists.

The IRS has not yet settled on a formal definition of high-wealth individuals, but Shulman specifically noted that other countries have often drawn the line at $30 million. He said the IRS will initially focus on individuals with “tens of millions of dollars” in assets or income.

US and Chile Sign New Income Tax Treaty on 2/4/10

WASHINGTON – In a ceremony at the U.S. Department of the Treasury today, Treasury Secretary Tim Geithner and Chilean Finance Minister Andrés Velasco signed a new income tax treaty between the United States and Chile that would provide certainty and stability of tax treatment for U.S. and Chilean cross-border investors.

If approved by the U.S. Senate, this treaty would be the first bilateral income tax treaty between the United States and Chile and would be only the second U.S. tax treaty with a South American country.

Provisions of the new tax treaty with Chile include:

Reductions in source-country withholding taxes on certain cross-border payments of dividends, interest and royalties;
Rules to determine when an enterprise or an individual of one country is subject to tax on business activities in the other country; and

Rules to enhance the mobility of labor by coordinating the tax aspects of the U.S. and Chilean pension systems.

The new tax treaty also contains other important provisions, including mechanisms through which the U.S. and Chilean tax authorities may collaborate to resolve tax disputes and relieve double taxation; provisions to ensure the full exchange between the U.S. and Chilean tax authorities of information for tax purposes; protections against discriminatory tax treatment; and provisions to ensure that only residents of the two countries enjoy the benefits of the treaty.

Tax Rules for International Flight Crews Working and Living Abroad

The IRS has recently released guidance for international flight crews working and living abroad. Click on the following link to our website to review those rules.  http://www.expatattorneycpa.com/id69.html  If you need help with your individual situation, return preparation or planning, do not hesitate to contact Don.

14,700 Total Offshore US Taxpayers Enter Voluntary Disclosure Program

The IRS has announced that 14,700 individual taxpayers filed by 10/15/09 to enter the Voluntary Offshore Disclosure Program. The filings disclosed bank accounts and other assets hidden in over 70 countries. The taxpayers entered the program in an attempt to reduce their penalties for failure to file certain forms with their tax returns to disclose their foreign bank accounts, foreign corporations, foreign trusts, etc.

New Tax Law Increases Penalties for Late Filing Partnership (1065) and Subchapter S Corporation Returns (1120S)

New High Cost Penalty  for Failure to File Partnership or S Corporation Returns on time!

Civil penalties apply for failure to file a partnership and S corporation returns. The penalty is $89 times the number of partners or shareholders for each month (or fraction of a month) that the failure continues, up to a maximum of 12 months for returns required to be filed after Dec. 31, 2008.

New law. Under the just enacted law, the base amount on which a penalty is computed for a failure with respect to filing either a partnership or S corporation return for a tax year beginning after Dec. 31, 2009, is increased to $195 per partner or shareholder. (Code Sec. 6698(b)(1) and Code Sec. 6699(b)(1), as amended by Act Sec. 16)
RIA observation: Over the fiscal period 2011 to 2019, this provision is projected to raise $642 million (partnership penalties) and $587 million (S corporation penalties).